Much of Apple’s success was/is due to its supply chain in China. For years now, geopolitical tensions and trade wars have been calling that dependence into question.
Robyn Mak for Reuters Breaking Views:
Apple’s entry into the People’s Republic would not have been possible without Taiwan’s Foxconn, formally known as Hon Hai Precision Industry. Founded by entrepreneur Terry Gou, the contract manufacturer and its peers were instrumental in shaping China’s export-driven model in the mid-1990s by establishing factories on the mainland. They were able to do so by working “hand in glove” with local officials, benefitting from subsidies, infrastructure, and critically, flows of cheap migrant labourers from rural areas. “Uncle Terry”, as Apple came to know Gou, stood out due to his political savvy, McGee writes. “They subsidised the shit out of him”, he quotes one senior Apple executive at the time anonymously.
Apple had neither a joint venture nor established its own operations. Instead, it invested in and taught many local companies how to supply parts for and make its products. This allowed it to avoid being too dependent on a handful of key suppliers, improving its bargaining power. It also resulted in an epic transfer of know-how “in the art of making things, in organising practical matters, and in the way people produce, distribute, travel, communicate, and consume”, according to China-born Federal Reserve economist Yi Wen, who McGee quotes in the book. It is not an exaggeration to say Apple spearheaded the development of the world’s most sophisticated manufacturing supply chain, while also helping to spawn rival Chinese smartphone brands from Huawei to Xiaomi.
Despite signs that political risks of doing business in China were rising, CEO Tim Cook doubled down. Apple built research and data centres across the country, banned apps that Beijing disliked from its Chinese App Store, and even invested in ride-hailing firm Didi Global…
Though exports of smartphones from China are currently exempt from U.S. tariffs, and the two sides on Monday postponed most of their levies, it is clear that Apple’s model of relying on one country for manufacturing is unsustainable… Apple may have some time to pull off its overdue China detox. Even so, it’s bound to be painful.
MacDailyNews Take: Yup, although it’s nothing our regular readers haven’t been hearing from us for years. Welcome, Reuters.
In 2016, Apple’s “Operations Genius,” Tim Cook, secretly signed a secret agreement with the human rights-abusing Chinese Communist Party estimated to be worth more than $275 billion. Cook promised that Apple would do its part to develop China’s economy and technological prowess via infrastructure investments, business deals, and worker training in exchange for the CCP quashing its surge of what promised to be crippling regulatory actions against Apple, The Information reported last December.
Many years before that, some two decades ago, it was Cook who spearheaded Apple’s move to make products “Designed in California,” but “Assembled in China.”
Since Cook, 62, made his $275 billion secret deal with the CCP five years ago, and as he now nears retirement age, Apple has made precious little headway in diversifying its production away from capricious, authoritarian China.
Why?
If the $275 billion wasn’t to buy Apple half a decade to free itself by diversifying its production away from China, mitigating risk, what was it for?
Longtime Apple analyst Gene Munster on Tuesday estimated that it would take as long as a decade for Apple to reduce its current near-total reliance on China to meaningful levels…
Tim Cook painted Apple into this corner. It worked marvelously well, until it didn’t.
A publicly traded company CEO’s job is to act in the best interest of its shareholders.
But, Apple’s operations don’t scream “genius” today. They scream “RISK!” But, you know, the market just loooves risk…
Apple shareholders and, in turn, Apple’s rubber-stamping Board of Lackeys, should hold one person responsible if this spiraling China dilemma continues deteriorate: Timothy D. Cook.
So, what’s Cook’s plan for getting the company out of this boxed-in predicament into which he placed it? Certainly Apple shareholders have a right to know. Hopefully, Cook has a better plan than simply cashing out and dumping this nightmarish quandary into the lap of Apple’s next CEO.
The time to accelerate plans to move production out of China was November 9th 2016, but, hey, six years late is better than never! – MacDailyNews, December 4, 2022
It’s smart for both Apple and Foxconn to diversify assembly outside of China. There’s no sense having all of your eggs in one basket. — MacDailyNews, April 2, 2019
India will help power Apple’s growth for many years. – MacDailyNews, January 4, 2017
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